HOWARD ANDERSON SAYS THE VC PARTY IS OVER

Old article, but interesting. The co-founder of Battery Ventures says the venture capital party is over. Not much detail in his statement so you don't know what benchmark he is using and over what period. Might be a bitter former venture capitalist with an untold story that needs to come out.

Also the reporter didn't research this article that well since he refers to Summit Partners and TA Associates as examples of venture capital firms moving to more mature investment areas, but Summit and TA are traditionally later stage funds and really don't do early-stage deals.

Party pooper

The Boston Globe
By Steven Syre

April 14, 2005

Venture capitalist Howard Anderson, God bless him, dictates the gold standard in his business when it comes to combustible quotes for publication.

Here's a new one: The venture capital party is really over, and it won't be revived for years. This is an unpopular point of view in a business that requires optimism and confidence the way people need air to breathe.

Anderson closed the door on his YankeeTek Ventures in Cambridge this year, as the Globe's Scott Kirsner first reported. In a storied venture capital career, Anderson cofounded Battery Ventures, went on to launch Yankee Group, and finally created YankeeTek Ventures in 2000.

That record, not to mention the fortunes he made for partners investing in young technology companies, is enviable even in a business that created a very long line of megamillionaires. But big venture investing scores have been hard to come by in recent years, and Anderson sees more of the same ahead.

"There is a tremendous self-interest to say that recent returns are an aberration, but just maybe the life cycle of this form is over," he wrote in a note the other day. "It will be a good 20 years before that is universally recognized, but it is the same issue as excess manufacturing capacity in the auto industry."

Venture capitalists and their money promote innovation, and they are still very good at that. Investment and innovation, Anderson says, are the excess capacity. That has dramatically tamped down the value of companies venture capitalists nurse through business infancy and diminished the returns on investment portfolios.

The Anderson message: This isn't just another market cycle. Systemic change is taking place, and the eye-popping returns that make venture capital famous are history. (full article)